If you are selling your home in Massachusetts, you may see a buyer try to purchase your home with a home sale contingency.

In other words, they write into the Real Estate contract that they will not have to proceed with buying your home unless the buyers successfully close on the property they currently own.

Accepting this arrangement 99% of the time is a big gamble and probably a big mistake!

The thought of ever recommending one of my seller clients accept an offer contingent upon selling another property is just downright foolhardy. To be clear, what kind of real estate market we are in makes no difference. It could be a seller’s, buyer’s, or neutral market, but that does little to change the appeal of a home sale contingency.

An offer contingent on another property closing means one thing – YOU LOSE CONTROL OF THE PROCESS, with no guarantees of anything.

Don’t be lulled into considering this arrangement if a buyer woos you with a full-price offer, either. What good does it do you if you never make it to the closing table?

How Does it Work?

When accepting a sale of home contingency, the buyer and seller agree on all the terms. There will be all the standard terms in an offer, such as the following:

• The sale price
• The earnest deposit amount
• Home inspection contingency
• Appraisal contingency
• Financing contingency
• Closing date

The buyer is given a specific amount of time to sell their home. If, despite their diligent efforts, they cannot sell their property, the contract will be terminated or extended at the seller’s discretion. If the sale is terminated, the buyer may or may not get their deposit back, depending on what is negotiated.

The listing status will be changed to contingent in the Multiple Listing Service.

A Home Sale Contingency in Massachusetts is One Big Gamble!

Crucial Things to Consider Before Accepting a House Sale Contingency

As a home seller, here are a few things to consider:

• How do you know if the contingent home is priced correctly?
• What if the property is not priced appropriately and the seller does not drop their price?
• What if the agent marketing the home is lousy?
• What if the home has issues discovered at a home inspection that can not be overcome?

Is the picture becoming clearer on why a home sale contingency is not a good idea? When you agree to accept a home sale contingency, your home is off the market, and you are at the mercy of the contingent home selling. If it is your first time selling, it is crucial to understand this real estate contingency comes with extreme risk.

As someone’s trusted Real Estate adviser, there is only one circumstance where I could feel good about one of my seller clients accepting this arrangement.

Only One Circumstance That Makes Sense

If I was marketing a challenging property to sell and the person making the contingent offer had a much more salable property, I would possibly guide my seller client into considering a contingent sale.

For example, the home I was marketing had some form of functional real estate obsolescence, making it difficult to sell. Let’s also assume the contingent home happens to be located in a highly desirable area of town and is in mint condition. The only obstacle is ensuring it is priced right. If that criteria were met, a seller may want to consider this as long as they get a fair offer on their property.

Remember, too, that as a seller, when you accept a contingent sale, you are relying on a different Realtor, who you may or may not know, to see this transaction through to a successful conclusion. Working in this field daily, I encounter various Real Estate agents. Some are very good, and others you would not want to wish on your worst enemy! This could become a key consideration in your thought process.

Qualifying For Two Mortgages or Getting a Bridge Loan

Sometimes, buyers don’t want to risk buying a second home without selling their existing one. Some buyers can qualify to carry two mortgages or get bridge loan financing but choose not to.

Bridge loans offer a temporary financial solution for buyers who need to purchase a new home before selling their existing one. These short-term loans are designed to bridge the gap between buying a new property and selling the current house. These loans provide the necessary funds to facilitate a smoother transition.

While bridge loans can be an effective tool, they come with higher interest rates and fees, making it crucial for buyers to carefully weigh the costs and benefits. Most of the time, it’s worth it for sellers to insist the buyer remove the contingency and proceed with securing the second loan.

Getting a mortgage pre-approval that says you don’t need to sell your current house strengthens your position as a buyer, especially when dealing with home sale contingencies.

Making a Non-Refundable Earnest Money Deposit

Another potential solution is making the earnest money non-refundable. If buyers are confident in selling their home, they can have some skin in the game. An earnest money deposit acts as a good-faith gesture, demonstrating the buyer’s profound interest in purchasing the home.

In a home sale contingency context, offering a more significant, non-refundable earnest money deposit can significantly enhance the offer’s attractiveness to the seller. This financial commitment signals the buyer’s dedication to the transaction. It could potentially sway sellers to accept the contingency despite the inherent risks.

What is a Right of First Refusal or Kick-Out Clause?

Avoid a Contingent Home Sale Mistake.

What about a “right of 1st refusal” if not a home sale contingency? On several occasions over the years, after being rebuffed on a home sale contingency, the buyer’s agent has tried asking for a right of 1st refusal instead.

Many Realtors do not even truly understand the right of first refusal! When you allow a buyer who can’t purchase a home without selling their own (contingent sale) to have a right of first refusal, you are doing your seller client a tremendous disservice.

When I am marketing a home and a legitimate buyer comes along who wants to purchase this property, the last thing I want is to cloud the negotiations by telling them we must wait 24-48 hours (the typical time allowed) to give another buyer their “1st right of refusal”.

Why on earth would I want to be required to call another buyer who doesn’t qualify to purchase the house without selling their own home to ask them if they would like to exercise their “right of 1st refusal”? This should be done only if the buyer has some skin in the game and risks losing their earnest money deposit if they do not complete the sale.

This is a pointless waste of time! I have found that some Realtors advise their clients that this arrangement is acceptable out of pure stupidity. Other times, it gives them a slight sense of accomplishment even though they have accomplished nothing.

Allowing a buyer who doesn’t qualify for a right of first refusal could result in the seller having nothing if a ready, willing, and able buyer walks away out of frustration.

The Buyer Needs to Qualify Without Selling Their Existing House

You should only consider allowing a right of first refusal if the buyer qualifies to buy without selling their existing property. They should also be willing to waive any rights to use a mortgage contingency clause stipulating they must sell their home to escape the contract. Why would a seller want to consider this scenario without the buyer willing to do these things?

Another scenario is if the buyer exercises the “right of 1st refusal.” You could add language that says this buyer would forfeit their deposit if they did not close as stipulated. A seller needs to consider whether it’s worth losing the buyer who could have purchased the home without any of this mess.

Is keeping a buyer’s deposit enough to mitigate a lost buyer that could have closed? My answer would be NO, especially if the Real Estate market was weak and values were declining.

It would only make sense to accept a right of first refusal if the buyer did not have anything to sell. In this circumstance, the buyer could step forward to purchase immediately if the seller requires it.

When you come down to it, how does a right of first refusal benefit a seller other than making them feel good that a potential buyer is interested? It only benefits when the buyer can close without a hitch. When buyers can purchase, they can always come back at that point anyway!

What is a Kick-Out Clause?

Kick-out clauses are similar to a first right of refusal but not precisely the same. They provide a safety mechanism for sellers when dealing with home sale contingency offers. This clause allows the seller to continue marketing their property.

If a non-contingent offer is received, the original buyer is given a specified timeframe to remove their contingency. They must proceed with the purchase or step aside. Understanding and negotiating kick-out clauses can be a strategic move for buyers. It offers a compromise that balances the needs of both parties in the transaction.

Conclusion

Avoid contingent sales if you don’t want to lose control of your home sale process. If your home is not selling, you can always reduce the price to attract more buyers and sell the property promptly.